Blockchain technology is a new way of documenting data on the internet. That said, it’s a public ledger of information collected through a network. At its most basic level, blockchain is digital information (the “block”) stored in a public database (the “chain”). Traditional recording methods keep information in one place. Still, blockchain has multiple copies of the same data stored in different locations on different networks on other devices, ensuring multiple safe copies of stored data.
Thankfully, the US Government has shown its support for developing blockchain regulation and blockchain growth. The US Congress has created the Congressional Blockchain Caucus to handle legislation dealing with Digital Leader Technology (DLT) and cryptocurrencies. In 2018, the Congressional Blockchain Caucus introduced several to encourage the federal government to monitor blockchain entities that may need to register as money transmitters. The bills also provide suggestions for the taxation of digital assets via the crypto taxation guide.
Why is Insurance for Blockchain Companies Important?
As a new and fast-growing technology, Blockchain companies have the unique responsibility of protecting digital asset opportunities for other organizations reliant upon their networks. What’s more, blockchain technology can potentially help address many challenges, such as data protection, privacy controls, and supply chain management.
However, Blockchain companies must navigate a mostly unknown and growingly complex legal landscape. As a result, organizations using blockchain technology must understand what risks they face. Insurance is critical for Blockchain companies to protect their customers’ assets, balance sheet, and longevity in the industry.
Blockchain’s claim to fame is its secure and unhackable frame due to the encryption techniques used for authentication procedures. Dig deeper, though, and you find that blockchain faces significant security risks due to a lack of multi-signature, poor validation procedures, and flaws in blockchain codes.
Also known as double-spending or the 51% attack, these attacks occur when 51% of the participants control more than 50% of the network by forming a group. The power imbalance compromises the network, often resulting in a loss of funds and control of the blockchain network.
One of the strengths of blockchain is its elimination of intermediaries, creating more transparency. But who is responsible should blockchain suffer a collapse? No governing body is formally and solely responsible for maintaining blockchain.
Blockchain companies risk direct financial loss due to the theft, disappearance, or destruction of property owned or held for a third party. Plus, digital asset hacks and thefts are prevalent in the modern world, resulting in the need for crime protection.
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Recommended policies for Blockchain Companies
These coverages form the foundation of any risk management program for Blockchain companies:
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping Fintech companies running smoothly.
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice
Blockchain Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the Blockchain space:
Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business. In the Fintech space, we recommend blended coverage of D&O and E&O insurance.
Professional liability, also known as errors and omission (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.
Cyber insurance protects companies from third-party lawsuits relating to electronic activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Types of Blockchain Companies that need insurance
- Real Estate
- Internet of Things
- NFT Marketplace
- Fintech Companies
Blockchain Frequently Asked Questions
The cost of insurance for Blockchain companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured
- Company practices: views on safety, compliance, and risk management
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company